Dan Haar: A Company, And An Industry, Reels After Snub In State Energy Contracts

The fuel cell industry, with several manufacturers and hundreds of suppliers in Connecticut, has had more than its share of trouble competing with other forms of generation.

The latest setback: A state-run bid selection this fall for 700 megawatts of clean and renewable power, which left fuel cells out in the cold entirely in favor of solar and wind projects.

That decision by the state Department of Energy and Environmental Protection was perhaps the most maddening stumbling block for the industry because it made sense only narrowly, based on per-kilowatt-hour bids. It ignored the big picture of the state's struggling economy or the hidden costs, and risks, of solar and wind power.

At Danbury-based FuelCell Energy, the sting was especially sharp, and contributed to a round of layoffs. Until the state announced the bid selections in October and November, the maker of large-scale, hydrogen–fueled electric generation equipment had been having a decent year.

FuelCell had already started construction to more than double the size of its main factory in Torrington. It aimed toward boosting Connecticut employment from 550 people to nearly 900 in five years – thanks largely to a state investment of $30 million in grants and loans, made in late 2015.

Pfizer, in Groton, ordered a 5.6-megawatt plant, an ideal, in-state example of the larger generators FuelCell has positioned itself to make and sell. In Bristol, the state was in the early stages of spending $1.5 million to clear toxic waste from a site across from ESPN, where FuelCell hoped to build generation plugged directly into the grid with enough power for a small town.

And in Beacon Falls, developers moved ahead with plans to build the world's largest commercial fuel cell power plant, 63 megawatts, using FuelCell equipment.

FuelCell was well represented in the bidding at DEEP: Five projects totaling 115 megawatts. Executives were confident their offers were low enough to win at least one sizable project, which the company needed in order to maintain its local workforce.

The bids were for the right to negotiate 20-year, guaranteed deals with Eversource and United Illuminated as part of the state's goal of using 20 percent clean and renewable energy by 2020.

Without those deals, it's close to impossible to make a direct-to-grid alternative-fuels plant work financially. FuelCell, which has not turned a net profit in 26 years as a publicly traded company, has seen uneven sales in recent years.

But in October, the selections for the largest proposals, 20 megawatts or larger, did not include Beacon Falls. Then in the November round for projects between 2 and 20 megawatts, FuelCell's hopes were dashed again.

In all, among 29 projects selected, 21 were in solar power and eight were wind, mostly outside of Connecticut, with power to be wheeled in. The wins among 14 bids for fuel cells, including FuelCell Energy, Doosan (owner of the former United Technologies Fuel Cell facility in South Windsor) and other bidders: Zero.

Within days, FuelCell Energy laid off 96 Connecticut employees and cut its 2017 production forecast in half for Torrington. The DEEP selections were a "significant" cause, CEO Chip Bottone said, though not the only reason for the action.

Wall Street sent FuelCell's stock so low that the company's market value is now less than the amount of cash it has on hand. That's a dangerous place to be in the world of corporate takeovers.

Side Benefits

Explaining the state's choices, DEEP officials said price alone accounted for 75 percent of the score. That matters in a state with some of the nation's highest electricity bills.

"You're paying it for 20 years," said Robert Klee, the DEEP commissioner. "This is the clear criteria we've set out."

That's laudable on its face. Solar projects came in cheap in part because of a glut of Chinese-made materials on the market, so Connecticut ratepayers benefit just like shoppers do when they buy cheap housewares at Wal-Mart.

But in the big picture, while solar can be a great deal for homeowners and businesses, it's not the bargain it seems for "grid-scale" projects — especially if the difference was fractions of pennies per kilowatt-hour.

Consider: The hundreds of manufacturing jobs at FuelCell Energy, Doosan and 600 industry suppliers all generate tax dollars. Fuel cells pay a sales tax in Connecticut, while solar equipment is exempt. Fuel cells often reuse former urban brownfields, while solar arrays gobble up the very same farmland and forest land that the state is paying to preserve. Fuel cells typically connect directly to utility switching stations, while solar often requires many miles of transmission lines, hurting reliability.

Perhaps most important, solar power doesn't replace the need for expensive, new power plants because it only works when the sun shines. Fuel cells, by contrast, run 24/7 so they help solve that region-wide problem.

Solar projects should have had a penalty of at least 2 cents per kilowatt-hour to account for all the added costs it imposes, said UConn economics professor Fred V. Carstensen.

The state's failure to pick any fuel cell projects "suggests that these decisions are being made within a silo, without an appreciation for the broad implications," said Carstensen, who did a study for one of the projects not connected with FuelCell Energy, which would have supported a proposed data center in New Britain.

"Lower electricity prices, which these projects in reality will not deliver, mean little in the context of the deep malaise afflicting Connecticut's economy," Carstensen said.

'The First Inning'

Klee and other state officials are quick to point out that fuel cells are very much a part of the state's clean-energy push, with, for example, 68 projects totaling 36 megawatts in a different program.

"We have a whole portfolio of places where we're trying to deliver on multiple fronts," Klee said. "We want to figure out, how do we encourage the development of these?"

When system reliability is part of the goal, Klee said, "Fuel cells are a double win."

Tracy Babbidge, DEEP's bureau chief for policy, added, "We're working with the utilities on additional steps that we could be taking in terms of outreach to commercial and industrial customers" for fuel cell uses.

That's all good stuff. But the best way to bring in the larger, grid-scale projects is to amend the selection factors for the guaranteed contracts, to account for the big picture. Klee and Babbidge plan to meet with all bidders early next year to evaluate the program – raising the hope that such a change can happen.

"We're in the first inning, not the ninth inning," said Catherine Smith, commissioner of the state Department of Economic and Community Development, which made the $30 million investment in late 2015.

Smith called Klee after she heard from people in the industry. "Am I thrilled about the way this turned out? Absolutely not," she said, but she said she's confident it will work out for the industry and for FuelCell Energy.

"The state would never have invested to help them expand if we didn't think they had a viable future."

That future is closing in at the Torrington FuelCell Energy plant. While I visited, a truck hauled off one of the company's 1.4-megawatt modules, made from four stacks of 400 stainless steel layers each.

Fuel cells work like batteries, but with a constant feed of hydrogen as fuel. In the process, natural gas is separated into hydrogen, water, carbon dioxide and heat –producing no hydrocarbon pollution.

In the factory, one team of workers prepared a similar module for shipping and another group connected wires on a stack.

In the company's business model, several of these module tie together to create generation plants such as a 15-megawatt facility that's running in Bridgeport.

"Being able to deliver those types of plants in 25-megawatt clips is part of this expansion," said Michael Bishop, the FuelCell chief financial officer. "We're actively developing the market and we expect it to happen."

CAPTION

The former site of Bill's Automotive, at the corner of Buckingham and Hudson streets is being cleared to make way for an unusual, $4 million mixed-use development of eight apartments, a gas station/convenience store and a deli. The property is being developed by Noble Gas.

The former site of Bill's Automotive, at the corner of Buckingham and Hudson streets is being cleared to make way for an unusual, $4 million mixed-use development of eight apartments, a gas station/convenience store and a deli. The property is being developed by Noble Gas.

CAPTION

The former site of Bill's Automotive, at the corner of Buckingham and Hudson streets is being cleared to make way for an unusual, $4 million mixed-use development of eight apartments, a gas station/convenience store and a deli. The property is being developed by Noble Gas.

The former site of Bill's Automotive, at the corner of Buckingham and Hudson streets is being cleared to make way for an unusual, $4 million mixed-use development of eight apartments, a gas station/convenience store and a deli. The property is being developed by Noble Gas.

CAPTION

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Gabriel Russo, of Middletown, owns Forest City Farms on the banks of the Connecticut River. The farm sells CSA (Community Supported Agriculture) shares giving customers a weekly supply of organically grown vegetables and culinary herbs throughout the growing season. Two years ago the city of Middletown chose Russo to start a farming operation on public open space along the river, putting otherwise dormant property into a productive use.

Gabriel Russo, of Middletown, owns Forest City Farms on the banks of the Connecticut River. The farm sells CSA (Community Supported Agriculture) shares giving customers a weekly supply of organically grown vegetables and culinary herbs throughout the growing season. Two years ago the city of Middletown chose Russo to start a farming operation on public open space along the river, putting otherwise dormant property into a productive use.

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CAPTION

Max Downtown temporarily closed its doors in July for renovations to modernize the restauran's look. The restaurant will reopen in mid-September.

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On one point, executives remain perplexed: They said they submitted bids "on the low end" of the range of 9 to 12 cents per kilowatt hour. But one winning solar competitor neglected to redact a price in its bid, and it shows 11.7 cents for the first year, a likely indicator for the whole 20 years.

Klee said the department could not comment on individual bid prices because the contracts are still being negotiated.

In the big picture, Connecticut has come too far in nurturing fuel cell technology as a homegrown industry – including classifying it as Class I renewable source – to stop now.